The Brazilian government recently launched the Eco Invest Brasil program with the aim of creating an environment conducive to attracting foreign private investment focused on environmental sustainability in the country. The initiative includes a currency protection mechanism for foreign investors involved in sustainable projects, recognizing the volatility of the exchange rate.
The Inter-American Development Bank (IDB) will act as an intermediary in contracting foreign exchange insurance in Brazil, facilitating the connection between investors and ecological projects. This is essential due to the high cost of currency protection, which often makes investments in foreign currency unviable.
The federal government is thus seeking to provide a mechanism to mitigate the impact of sudden changes in the exchange rate on foreign investments. The cost associated with hedging can make these investments impractical, delaying or even making unfeasible the necessary ecological transition.
Exchange rate fluctuations affect international operations, increasing costs and reducing profits. To mitigate this risk, there are options such as exchange rate locks and NDF (Non-Deliverable Forward). There is no standard strategy; each client receives personalized guidance to protect their operation.
A currency lock is a common form of currency hedging, where the client and the bank agree on a fixed exchange rate for a future transaction, offering protection against unfavorable currency fluctuations. A Proforma Invoice is usually required to justify the transaction.
The NDF, on the other hand, is a derivative contract that allows you to speculate or hedge against changes in the exchange rate over a given period. Unlike currency locks, it does not involve the physical delivery of foreign currency.
Each of these options has advantages and disadvantages, and the choice depends on the specific needs and risk tolerance of each company or investor. It is important to carefully consider individual objectives and circumstances before deciding which currency hedging strategy to adopt.
At Pryor Global, we help companies carry out foreign exchange transactions safely, efficiently and cost-effectively through our foreign exchange account opening service. With this facility, your company can buy, sell and make international transfers in various currencies, such as dollars and euros. In addition, we offer the possibility of making payments to suppliers abroad or receiving amounts in foreign currencies protected from exchange rate fluctuations.
Talk to our team and find out more about our services!
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